Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
…and expect financial returns
Key to the success of impact investments is the fact that they are investments
expected to generate a financial return. This aim should co-exist with the intent
toward positive impact, though one or the other may be the primary focus for a given
investor. In fact, the pairing of these two motivations by investors will hopefully
encourage businesses to develop in financially sustainable ways, thus facilitating the
growth of the impact delivered by those businesses.
Investors: Market participants and infrastructure
Impact investing may be new terminology, but it is not a new concept
The term “impact investing” may be new, but the practice of investing in businesses
that provide solutions to social challenges has been around for quite some time. The
Commonwealth Development Corporation in the UK, established in 1948 5 , invests in
a commercially sustainable manner in the poorer countries of the developing world
and to attract other investors by demonstrating success. Similarly, the International
Finance Corporation was created in 1956 to foster private sector investment in
emerging nations.
Private capital has also been deployed, with a focus on generating non-financial
impact, for decades. The parent organization of Sarona Asset Management, for
example, has been making socially- and environmentally-driven investments since
1953. Prudential 6 also has a long tradition of making investments that support and
improve communities, having established a formal Social Investments program in
1976 and invested more than $1bn since then. While they may not have been
identified historically as “impact investors”, their intent was consistent with the
definition.
A variety of investor types participate
Impact investors vary widely in character – from individuals to institutions across
sectors. Some of the investors currently making impact investments include:
• Development finance institutions (“DFIs”) were initially capitalized by
governments to complement donor aid, and many now sustain their operations
from earned income. These include the multi-lateral International Finance
Corporation (“IFC”), regional banks such as the European Bank for
Reconstruction and Development (“EBRD”) and investment organizations such
as the US Overseas Private Investment Corporation (“OPIC”) and the
Commonwealth Development Corporation (“CDC”) in the UK.
• Private foundations such as Omidyar Network in the US and the Esmée
Fairbairn Foundation in the UK consider impact investing as a means to deploy
their endowment assets toward their social mission. A larger number of
foundations makes program-related investments (PRIs) from the grantmaking
(rather than endowment) side of operations.
• Large-scale financial institutions such as J.P. Morgan, Citigroup, Prudential
and Africa’s Standard Bank are positioning themselves to grow impact investing
businesses beyond their minimal regulatory obligations.
5 Established as the Colonial Development Corporation
6 We reference The Prudential Insurance Company of America, not Prudential PLC.
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